Agreed-Upon Procedures (AUP) engagements are a type of assurance service where an independent practitioner is engaged to perform specific procedures on financial information, systems, or processes. The practitioner performs the procedures agreed upon by the parties involved and provides a report that presents the factual findings without expressing an opinion or conclusion.
The nature and scope of the agreed-upon procedures will vary depending on the specific requirements and objectives of the engagement. The parties involved in an AUP engagement typically define the procedures to be performed, and the practitioner’s role is to perform those procedures and report the results. The report may be issued to the engaging party or made available to a wider audience, depending on the agreed-upon terms.
Agreed-Upon Procedures engagements can cover a wide range of areas within an organization, including financial statements, internal controls, compliance with regulations or contractual agreements, IT systems, inventory management, payroll processes, or specific financial transactions. The procedures can be tailored to address specific risks or concerns identified by the engaging party.
Examples of Agreed-Upon Procedures engagements include:
Inventory Verification
The practitioner performs procedures to verify the existence, quantity, and condition of inventory items. This may involve physical inspections, reconciliation with records, and examination of supporting documentation.
Bank Reconciliation
The practitioner reconciles bank statements with the organization's records, ensuring the accuracy and completeness of recorded transactions, verifying balances, and investigating any discrepancies.
Compliance Testing
The practitioner tests the organization's compliance with specific laws, regulations, or contractual agreements. This may involve reviewing documentation, conducting interviews, and performing tests to determine adherence to the agreed-upon requirements.
Data Validation
The practitioner validates the accuracy and completeness of data within a system or database. This may include comparing data from different sources, performing data quality checks, and verifying the integrity of the data.
Revenue Recognition Verification
The practitioner examines the organization's revenue recognition policies and procedures to ensure compliance with accounting standards. This may involve reviewing contracts, analyzing revenue recognition methods, and assessing the accuracy of revenue reporting.
Expense Verification
The practitioner reviews and verifies specific expenses incurred by the organization. This may include examining supporting documentation, assessing compliance with expense policies, and identifying any potential irregularities or discrepancies.
Due Diligence Procedures
In the context of mergers, acquisitions, or investments, the practitioner performs procedures to evaluate the accuracy and reliability of financial information provided by the target entity. This may involve reviewing financial statements, examining supporting documentation, and assessing the financial health and risks associated with the transaction.
It’s important to note that the scope and procedures performed in an AUP engagement are determined through mutual agreement between the engaging party and the practitioner. The practitioner’s report will present the factual findings resulting from the procedures performed, without providing an opinion or conclusion. The engaging party can use the findings to make informed decisions or fulfill specific reporting requirements.
